CAFR show pensions still better than 401(k)s

In a piece that was published in the Grand Junction Daily Sentinel, Emma Donahue, Secure PERA’s program manager makes the argument that a pension provides a more secure retirement than a 401(k) and PERA’s most recent CAFR report proves it. Secure PERA is NPPC’s coalition in the State of Colorado.

Recently, Colorado’s Public Employee Retirement System (PERA) demonstrated why defined benefit pension plans are better for workers in the state.

In June, PERA released its 2018 Comprehensive Annual Financial Report (CAFR), revealing investment returns for 2018 were negative. While this triggered a small increase in employee and employer contributions and a COLA reduction for current retirees, it did not eliminate anyone’s ability to retire. Since PERA is a large pension system, with new employees entering the system and other employees retiring regularly, investment risk is spread out over a large and diverse group of individuals.

At the end of 2018, the stock market faced a downturn. The S&P 500 and Dow Jones Industrial Average fell for the first time in three years. According to CNBC, “the S&P 500 and Dow Jones Industrial Average were down 6.2 percent and 5.6 percent, respectively, for 2018. Both indexes logged in their biggest annual losses since 2008, when they plunged 38.5 percent and 33.8 percent, respectively.” Although these numbers are stark reminders of the Great Recession, they explain why PERA saw its investment returns fall to negative 3.5 percent during 2018.

On the other hand, workers with only a 401(k) plan absorb those same market conditions on their own. Meaning that worker may delay retirement, especially if they hoped to retire at the beginning of 2019, in hopes to recover the lost assets they need to retire with dignity.

Although returns were negative during 2018, this year the market has made a rebound. According to Marketwatch, at the end of July, “the broad-market benchmark is up nearly 21 percent” for the S&P 500. Additionally, the Dow is up 16.4 percent and the Nasdaq is up 25.5 percent. Are we out of the weeds yet? Absolutely not. Last week, President Trump announced brand new tariffs on Chinese imports, essentially decimating any beneficial market bump from the Federal Reserve’s announcement to lower interest rates by .25 percent — the first time rates were lowered since the peak of the Great Recession in 2008.

Instead of focusing solely on PERA for their investment losses during a market downturn, it’s important to remember that PERA’s pooled assets provide a secure retirement to hundreds of thousands of current and future retirees. Additionally, it’s important to note that PERA, during the release of the CAFR, still projects to achieve full funding by 2047. Stay the course — that’s our message to PERA and lawmakers. Continue to provide a dignified pension to public employees and stop with the talk of 401(k)s.

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